Powell to lean hawkish during Senate testimony this week- ANZ

investing.com:

Investing.com-- Federal Reserve Chair Jerome Powell is likely to reiterate his hawkish stance on interest rates and inflation when testifying before Congress this week, analysts at ANZ Group said in a note on Monday. 

While Powell is unlikely to provide any new cues, he is likely to reiterate that the Fed needs to see more signs of easing inflation before considering any reductions in interest rates. 

“We expect him to lean hawkish and stick to the script he has been using since the January FOMC meeting, namely: the Fed needs more convincing evidence that inflation is on track to get back to 2%,” ANZ analysts said in a note. 

ANZ analysts said that the U.S. economy remained in “reasonably good shape,” while inflation had also eased substantially in recent months. But the reduction in inflation was still not enough to inspire confidence over a sustainable return to the Fed’s 2% annual target.

Resilience in the U.S. economy gives the Fed enough headroom to wait for more signs of easing inflation. The central bank should have enough confidence by the middle of the year to begin easing monetary policy, ANZ analysts said, adding that they considered the Fed’s current policy settings to be restrictive enough. 

Their forecast is in line with broader market expectations for a 25 basis point rate cut in June, according to the CME Fedwatch tool. 

ANZ analysts also said that nonfarm payrolls data for February, which is due this Friday, is expected to grow at a softer pace, but still well above levels the Fed is comfortable with. 

The Fed has kept interest rates at an over 20-year high since July 2023- a trend that did see some cooling in the labor market and inflation. But data for January showed that the U.S. labor market still